Help with the Serial Problem Chapter 4 Activity-Based Costing and Analysis The s
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Help with the Serial Problem
Chapter 4 Activity-Based Costing and Analysis The serial problem began in Chapter 1 and continues through most of the book. If previous chapter segments were not completed, the serial problem can begin at this point.) After reading an article about activity-based costing in a trade journal for the furniture industry. Adria Lopez wondered if it was time to critically analyze overhead costs at success Systems. In a recent month. Adria found that setup cost, inspection costs, and utility costs made up most of its overhead Additional information about overhead follows. Overhead has been applied to output at a rate of 50 pecentage of direct labor costs. The following data pertain to Required Classify each of its three overhead activities as unit level, batch level, product level, or facility level What is the total cost of Job 6.15 if Success Systems applies overhead at 50 percentage of direct labor cost? What is the total cost of Job 6.15 if Success Systems uses activity-based costing? Which approach to assigning overhead gives a better representation of the costs incurred to produce Job 6.15? Explain. BTN 4-1 Refer to financial statements of Polaris (Polaris.com! and Arctic Cat tarcticcat.com! to answer the following. Required Identify at least two activities at Polaris and at Arctic Cat that cause costs to be incurred. Do you be- Jieve these companies should be concerned about controlling costs of the activities you identified? Explain. Would you classify Polaris and Arctic Cat as service, merchandising, or manufacturing companies? Explain. Is activity-based costing useful for companies such as Polaris and Arctic Cat? Explain. BTN 4-2 Polaris and Arctic Cat are competitors in the sales of recreational and off-road vehicles. Compare these companies income statements and answer the following Required Which company has a higher ratio of costs, defined as cost of goods sold plus total operating expenses, to revenues? Use the two most recent years' income statements from Appendix A. Show your analysis. How might the use of activity-based costing help the less competitive company become more competitive? Polaries sells its vehicles directly to dealers. Assume a dealer is considering opening a new retail store. What are the activities associated with opening a new' retail store?Explanation / Answer
Labour Cost
3,500
50% of Labour Cost
1,750
Total Cost - Using 50% of Labour cost as Overhead
Particulars
$
Materials
2,500
Labour
3,500
Overheads
1,750
Total Cost
7,750
Particulars
$
Materials
2,500
Labour
3,500
Overheads (WN-1)
3,400
Total Cost
9,400
WN-1 :
Particulars
Cost Driver
Actual
Job 6.15 Cost
Consumed
Setting Up Cost
Batches
20,000
1,600
2
Inspecting
Parts
7,500
600
400
Utilities
Machine Hrs
10,000
1,200
600
Total Overheads
3,400
Assigning overheads based on Activity based costing represents better picture of cost incurred to a job since identifying cost at each activity level based on cost drivers rather than an applying a direct Labour percentage.
Labour Cost
3,500
50% of Labour Cost
1,750
Total Cost - Using 50% of Labour cost as Overhead
Particulars
$
Materials
2,500
Labour
3,500
Overheads
1,750
Total Cost
7,750
- Total Cost - Using Activity cost as Overhead
Particulars
$
Materials
2,500
Labour
3,500
Overheads (WN-1)
3,400
Total Cost
9,400
WN-1 :
Particulars
Cost Driver
Actual
Job 6.15 Cost
Consumed
Setting Up Cost
Batches
20,000
1,600
2
Inspecting
Parts
7,500
600
400
Utilities
Machine Hrs
10,000
1,200
600
Total Overheads
3,400
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